The Nigerian Palm oil Industry: What went wrong and the Way Forward: – Part 1

Nigeria’s once-thriving palm oil industry is often cited as one of the most miserably failed economic opportunities in Africa.

Agriculture has suffered from years of mismanagement, inconsistent and poorly conceived government policies, and the lack of basic infrastructure. Still, the sector accounts for over 26.8 per cent of GDP, and two-thirds of employment.

Nigeria is no longer a major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil production, mostly from obsolete varieties and overage trees, is stagnant at around 180,000 tons annually; 25 years ago it was 300,000 tons. An even more dramatic decline in groundnut and palm oil production also has taken place.

Use of the oil palm fruit to extract edible oil has been in practice across the continent for centuries, and it remains an essential ingredient in much of West African cuisine.

Farmers in the region, who inter-cropped oil palm trees with other food crops like yam and maize, started the first export trade early in the 19th Century. Before its close, the industrial revolution in Britain had created a huge demand for palm oil, which by then had found its way to use in candle making and as an industrial lubricant.

The economic importance of palm oil grew steadily because of its high yield, leading European colonists to start plantations in Central Africa by 1900. As palm oil found wider use in food-processing and industry, global demand for the commodity surged. By 1982, worldwide palm oil exports had grown to a staggering 2,400,000 million tonnes per annum.

For most of this period, Nigeria held centre stage as one of the largest producers and exporters of palm oil, accounting for more than 40% of global output in the 1950s. At the time of the country’s independence from British colonial rule in 1960, palm oil contributed 82% of national export revenue.

However, the oil boom of the mid-seventies and the subsequent decline of farming proved catastrophic to the sector. By the end of the twentieth century, the Nigerian palm oil harvest had dwindled to just 7% of global production. More embarrassingly, the once-largest exporter had turned into a net importer of palm oil, sourcing 180,000 MT of the commodity from international markets to meet local demand1.

The fundamental flaw with the palm oil sector lies in Nigeria’s colonial origins, when British trade necessities dictated economic policy. Because of its primary export orientation at that time, planned expansion of the industry was slow in coming through and its future competitiveness had been compromised.

As a result, the bulk of Nigerian palm oil comes from dispersed and semi-wild groves, and through the use of highly outdated manual processing techniques. Several attempts to establish large-scale plantations since the 1960s – including the Cross River State plan and the Oil Palm Belt Rural Development Programme – ended in miserable failure.

Currently, 80% of production comes from scattered smallholdings spread over an estimated 1.6 million hectares of land. In contrast, plantations occupy only about 300,000 hectares – most of it coming up over the last decade with private sector investment.

Economic reforms initiated since the reinstatement of democracy in 1999 succeeded somewhat in nudging the sector out of stagnation. Between 2001 and 2005, palm oil production grew rapidly from 760 MT to 800 MT, while recording a corresponding rise in local consumption.

Much of this movement can be owed to a ban that Abuja imposed in 2002 on the import of palm oil and related products. However, Abuja’s reversed the ban in January 2008, prompting grave misgivings about the fate of the industry and impact on local production.

The Plantation Owners Forum has gone so far as to say the move would severely threaten Nigeria’s Vision 2020 goals for accelerated economic development. Inconsistent policies like this are largely to blame for the fact that Nigeria’s palm oil industry continues to flounder despite the marked resurgence of agriculture through the last decade.